Why Zynga Poker Mucked its Hand Under Pressure

Online gaming giant Zynga made the shock announcement yesterday that it would no longer be attempting to launch real money gaming in the US, sending share prices into an overnight nosedive.

For anyone who has been even vaguely following Zynga’s dizzying expansion into real-money poker, this is a U-turn of epic proportions. Hell, to some it might seem that it’s careered right off the road.

Zynga Poker Plus, Zynga’s first real-money client, hit the UK in April. This was a long-awaited development for British poker players; grinders everywhere became like patiently circling sharks, licking their lips at the prospect of playing real-money games with whales primed and fattened off a steady diet of Facebook donkaments. “The player pools will be insanely soft,” cried everyone in the poker community. “You’d have to be a fool not to sign up and jump in.”

But the decision of Zynga not to pursue the US market seems to be a consequence of a catastrophic plummet in popularity. Yesterday saw the company report a quarterly revenue of $231m, a figure that is a massive 31% down on the same time last year. In addition to this, the value of its shares fell by 14% to $3.02 in after-hours trading – this is an almost 70% drop from its original IPO price of $10.

So where did it all go wrong? In the press release, Zynga called the decision not to apply for a real-money gambling licence in the US a “focused choice”, insisting that it is continuing to “evaluate [its] real-money gaming products in the United Kingdom test”.

It goes on to say that currently its “biggest opportunity is to focus on free-to-play social games”. This is a far cry from the statement made just three months ago, in which then-CEO Barry Cottle proclaimed optimistically that the company’s “long-term vision is to offer our players the next generation of real-money games on multiple platforms in regulated markets worldwide.”

At first glance, it would seem that Zynga is yet another fly caught in the sticky web of bureaucratic US legislation. The fight to re-legalise online poker in America doubtless still has a long, hard slog ahead of it, but recently there has been some glimpses of light at the end of the tunnel with the launch of Ultimate Poker in the state of Nevada. New Jersey and Delaware have also shown positive signs of progress. Despite this, it appears that Zynga may have decided that pursuing the American market may be too much of a risk.

This is not to say that there aren’t any other factors in Zynga’s misfortune, however. Arguably their mobile poker technology failed to succeed against competitors in what is an increasingly cutthroat industry. Many business experts were skeptical about Zynga, a primarily social gaming company, and its chances of success in the highly specific online gambling market. In this respect, the recent replacement of CEO Mark Pincus with Don Mattrick – an individual who knows nothing about online gambling – could be said to have been the final nail in the coffin.

If nothing else, Zynga’s difficulties go to show just how volatile the poker industry can be right now. Black Friday hit online poker like a triple-decker bus, and it’s only just begun to totter, blinking and unsteady, back to its feet. What was once a promising venture went sour quickly, and Zynga will be held up as a cautionary tale – a business that made the fatal mistake of overplaying its hand.